Kenya on cliff's edge as public debt nears Sh10 trillion limit

Treasury Cabinet Secretary Njuguna Ndung'u. [Elvis Ogina, Standard]

The total public debt is now at Sh9.4 trillion as both domestic and external liabilities continue to rise rapidly.

The National Treasury on Friday released the updated figures as it warned the country is headed for a financial crisis unless Parliament accedes to its request to raise the debt ceiling beyond the Sh10 trillion limit.

At Sh9.4 trillion, the William Ruto government has a tiny window of borrowing only Sh600 billion to fund its national programmes.

"As at the end of March 2023, the total disbursed outstanding public debt stood at Sh9.4 trillion against a public debt limit of Sh10 trillion," said Treasury Cabinet Secretary Njuguna Ndung'u during a meeting with parliamentary committees in Nairobi.

Prof Ndung'u said domestic debt stood at Sh4.55 trillion as of March 30, the highest level it has reached, while external debt substantially exceeded Sh4.85 trillion after the depreciation of the local currency in the recent past, and fresh borrowings.

"The debt stock remains sustainable but with a high risk of debt distress," he said.

Kenya's public debt grew by nearly Sh700 billion in the six months to March this year under President Ruto's government, pointing to a sustained borrowing appetite.

This is amid growing concerns that the country could be headed to a full-blown debt crisis.

The share of external debt is expected to rise further if the International Monetary Fund disburses billions of shillings that Kenya has sought from the multilateral lender to cope with a financial crunch.

CS Ndung'u said Treasury has a budget deficit of Sh720 billion in the next financial year that starts in July, signalling the country is set for financial trouble if the Sh10 trillion debt ceiling is breached.

"The National Treasury requests Parliament to approve the replacement of the current debt ceiling of Sh10 trillion with a debt limit of 55 per cent of the gross domestic product, (GDP)" he said.

The ceiling established by Parliament is the maximum amount the government can borrow.

Though the Budget and Appropriations Committee raised concerns on pegging the debt ceiling on GDP, the CS maintained that government and policymaking must be solution-oriented and strive to meet the needs of the economy.

"We have business cycles, and we can also see political cycles, and somehow political cycles can actually coordinate business cycles," he said.

"When we are anticipating elections to come in this country or even countries in this region, nobody wants to borrow long-term, everybody wants to borrow shot-term.

"Everybody moved to 91-day bills and one-year debt, so after one year when the elections are resolved, then you find the lumping up maturities and by the time you adjust yourself, you have to face this kind of liquidity issue.

"So you cannot say that we cannot form future policies because we are having liquidity issues."

If the debt ceiling is not raised after it is breached, further borrowing will not be possible, dealing a blow to the government's plan to raise debt to fund national programmes.

Ndung'u said the world is not coming to an end, "it is a continuous process of redefining ourselves."

"The market is also pricing itself, re-organising itself in terms of portfolio, they're moving away from the short term and now they're seeing there is a future."

Ruto's administration, which came into office in September last year, has been laying out plans for Parliament to replace the current limit with a debt anchor hinged on the GDP.

"In keeping with the global best practice on debt limit policy, and in furtherance of the administration's quest to realise inter-generational equity through sustainable debt management, Cabinet considered the legislative proposal to harmonise the definition of 'public debt' in the Public Finance Management Act, 2012 and the attendant regulations with the spirit and letter of Article 214 (2) of the Constitution of Kenya," said a Cabinet brief from State House recently.

"In that regard, Cabinet approved the transmittal to Parliament of the legislative proposals replacing the nominal debt ceiling of Sh10 trillion with a debt anchor set at 55 per cent of GDP in present value terms."

The Commission on Revenue Allocation recently warned that the country is set to breach its debt ceiling, with Kenya's financial stability at stake.